Whenever I talk to IFAs, the one thing guaranteed to come up in our conversations is their weariness at the constant slew of paperwork hitting their desks and email inboxes from regulators and other sources, updating rules and regulations or offering “fresh” insights into their business practices.
Be it surveys, opinion panels, invitations to seminars, conference reports, special studies or whatever, the flood of information never ceases. IFAs are expected to assimilate and make sense of all of it – and that is before they even begin to advise their clients.
I feel a lot of sympathy for their plight, not least because, in common with most other journalists covering the financial services industry, I too have to wade my way through scores of the same reports that reach advisers. My role is slightly different, however. I try to make sense of what they say, identifying any small nuggets of useful information that can help inform what goes into this column.
Last week, for example, not an unusual one by any means, I received 57 emails on the subject of the RDR alone. Skimming through each one plus any attachments in the – usually – forlorn expectation of finding a lonely pearl can take many hours.
Sometimes you find yourself pressing the delete button, only to realise after emptying your email bin at the end of the week that you have erased something that could have been used as part of the discussion.
Which is how I find myself in the slightly embarrassing situation this week of citing a press release without quoting the source, hoping the original sender of the email will confirm to verify the truth of what I am about to tell you.
Basically, it was about another seminar aimed at the IFA community, in which a panel of experts shared their experiences of how to inform consumers about the RDR. In-between a slew of familiar bromides about initiating a conversation with your clients before the change-over was one small real-life experience from an adviser, telling his colleagues how to deal with a delicate issue: the switch to fees.
He cautioned against making a direct comparison between fees and commissions because that might leave many clients in shock at the extent of the commissions they have unknowingly been paying for so many years. The end result, he warned, was that some might decide they wanted to have nothing more to do with their adviser.
Now, I don’t know about you but I was shocked by this comment. After all, we have had 10 years of the menu system, in which independent advisers should have been offering the option of paying by fee and an appropriate fee scale.
In the majority of cases – IFAs would also have been offering the alternative option of paying by commission and, for a range of common financial products, the commission the firm normally charges, set alongside average rates charged in the market.
Given this information, the assumption ought to have been that clients should not be unprepared for a homily from the advisers about the potentially costly effects of commissions as opposed to fees. Yet, somehow, they are. So much so that IFAs are now being advised not to make any direct comparisons between the two for fear of putting off consumers.
What we appear to have in the UK today is a large group of consumers who hate the idea of dealing with or talking about financial issues, about which they feel totally uninspired and uninformed. At the same time, they have grudgingly been won over to the idea that independent financial advice is the right option for them.
Having reached, exhausted by the effort, the IFA shore, all they want is for their adviser to deal with their financial issues. They prefer to ignore as much as possible the fact that some of their advisers are making lots of money out of them and delivering little in return.
Were they to do their homework and seriously begin to assimilate the wads of paperwork their adviser is handing over, they would realise that all is not well. But, like many of us, they prefer to ignore what is staring them in the face.
Which is why, for example, another email I received the week before last from the AIC came up with a list of questions for investors to quiz their IFAs about that were so basic – how often my portfolio will be reviewed, what my objectives as an investor and how will the performance of my portfolio be assessed against these objectives, among others – that one must ask why they have not been raised before.
No wonder my fellow-columnist Alan Lakey confessed not very long ago that he was facing so many problems trying to persuade his own clients that the fee option was better than the commission one – and that after January 2013 he, and thousands of former IFAs, will switch to restricted status.
What this individual IFA confirmed is what many of us have long suspected: the RDR will shine a tiny light into corners of the industry that many IFAs would rather not have to disclose to their clients. Amid all the gnashing and wailing about the RDR’s dire effects, that may yet turn out to be a small but interesting surprise for millions of consumers.
Nic Cicutti can be contacted at firstname.lastname@example.org